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Chapter 6 Strategy Analysis & Choice. Strategy Analysis & Choice. -- Establishing long-term objectives -- Generating alternative strategies -- Selecting strategies to pursue -- Best alternative - achieve mission & objectives. Nature of Strategy Analysis & Choice.

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slide2

Strategy Analysis & Choice

--Establishing long-term objectives

-- Generating alternative strategies

-- Selecting strategies to pursue

-- Best alternative - achieve mission & objectives

Nature of Strategy Analysis & Choice

slide3

Strategy Analysis & Choice

Alternative Strategies Derive From --

  • Vision
  • Mission
  • Objectives
  • External audit
  • Internal audit
  • Past successful strategies
slide5

Comprehensive Strategy-Formulation Framework

Stage 1:The Input Stage

Stage 2:The Matching Stage

Stage 3:The Decision Stage

slide6

Strategy-Formulation Analytical Framework

Internal Factor EvaluationMatrix (IFE)

Stage 1:The Input Stage

Competitive Profile Matrix(CPM)

External Factor EvaluationMatrix (EFE)

Note: EFE and CPM form external and IFE from internal (assessment)

slide7

Stage 1: The Input Stage

  • Basic input information for the matching & decision stage matrices
  • Requires strategists to quantify subjectivity early in the process
  • Good intuitive judgment always needed
slide8

Strategy-Formulation Analytical Framework

SWOT Matrix

Stage 2:The Matching Stage

BCG Matrix

Grand Strategy Matrix

slide9

Stage 2: The Matching Stage

  • Match between organization’s internal resources & skills and the opportunities & risks created by its external factors
    • E.g. internal: strong R and D function
    • External changing demographics (population getting older)
    • Strategy: Develop new products for older adults (related to long term objectives financial or strategic)
slide10

Stage 2: The Matching Stage: SWOT Matrix

  • Four Types of Strategies
  • Strengths-Opportunities (SO):
    • Use a firm’s internal strengths to take advantage of external opportunities
  • Weaknesses-Opportunities (WO):
    • Improving internal weaknesses by taking advantageof external opportunities
  • Strengths-Threats (ST):
    • Use a firm’s strengths to avoid or reduce the impact of external threats.
  • Weaknesses-Threats (WT):
    • Defensive tactics aimed at reducing internal weaknesses and avoiding external threats
slide12

Excess working capacity (strength)

+

20% annual growth in the cell phone industry (opportunity)

=

Acquire Cellfone, Inc.

Insufficient capacity (weakness)

+

Exit of two major foreign competitors from the industry (opportunity)

=

Pursue horizontal integration by buying competitor's facilities

Strong R&D (strength)

+

Decreasing numbers of young adults (threat)

=

Develop new products for older adults

Poor employee morale (weakness)

+

=

Develop a new employee benefits package

Strong union activity (threat)

Matching Key Factors to Formulate Alternative Strategies

Key Internal Factor

Key External Factor

Resultant Strategy

Which types of strategies, e.g. intensive diversification…, are referred to above

key strategies
Key Strategies
  • Accelerate product launches by strengthening R and D team
  • Extend links with key technology centres
  • Raise additional venture capital
  • Expand senior management team in sales/marketing
  • Recruit non-executive directors
  • Strengthen human resources function and introduce share options for staff
  • Appoint advisers for intellectual property and finance
  • Seek new market segments/applications for products
swot matrix1
SWOT Matrix

Inset key strategies into correct box element of the Matrix

limitations with swot matrix
Limitations with SWOT Matrix
  • Does not show how to achieve a competitive advantage
  • Provides a static assessment in time
  • May lead the firm to overemphasize a single internal or external factor in formulating strategies
slide17

BCG Matrix

Boston Consulting Group Matrix

  • Enhances multi-divisional firm in formulating strategies
  • Autonomous divisions = business portfolio
  • Divisions may compete in different industries
  • Focus on market-share position & industry growth rate
slide18

BCG Matrix

Relative Market Share Position

  • Ratio of a division’s own market share in an industry to the market share held by the largest rival firm in that industry
bcg matrix

Stars

II

Question Marks

I

Cash Cows

III

Dogs

IV

BCG Matrix

Relative Market Share Position

High

1.0

Medium

.50

Low

0.0

Industry Sales Growth Rate

High

+20

Medium

0

Low

-20

slide20

BCG Matrix

Question Marks

  • Low relative market share – compete in high-growth industry
    • Cash needs are high
    • Case generation is low
  • Decision to strengthen (intensive strategies) or divest
slide21

BCG Matrix

Stars

  • High relative market share and high growth rate
    • Best long-run opportunities for growth & profitability
  • Substantial investment to maintain or strengthen dominant position
    • Integration strategies, intensive strategies, joint ventures
slide22

BCG Matrix

Cash Cows

  • High relative market share, competes in low-growth industry
    • Generate cash in excess of their needs
    • Milked for other purposes
  • Maintain strong position as long as possible
    • Product development, concentric diversification
    • If weakens—retrenchment or divestiture
slide23

BCG Matrix

Dogs

  • Low relative market share & compete in slow or no market growth
    • Weak internal & external position
  • Liquidation, divestiture, retrenchment
slide24

Grand Strategy Matrix

  • Tool for formulating alternative strategies
  • Based on two dimensions
    • Competitive position
    • Market growth
slide25

RAPID MARKET GROWTH

  • Quadrant II
  • Market development
  • Market penetration
  • Product development
  • Horizontal integration
  • Divestiture
  • Liquidation
  • Quadrant I
  • Market development
  • Market penetration
  • Product development
  • Forward integration
  • Backward integration
  • Horizontal integration
  • Concentric diversification

WEAK

COMPETITIVE

POSITION

STRONG

COMPETITIVE

POSITION

  • Quadrant III
  • Retrenchment
  • Concentric diversification
  • Horizontal diversification
  • Conglomerate diversification
  • Liquidation
  • Quadrant IV
  • Concentric diversification
  • Horizontal diversification
  • Conglomerate diversification
  • Joint ventures

SLOW MARKET GROWTH

slide26

Grand Strategy Matrix

Quadrant I

  • Excellent strategic position
  • Concentration on current markets/products
  • Take risks aggressively when necessary
  • Which type of strategy would you suggest?
slide27

Grand Strategy Matrix

Quadrant II

  • Evaluate present approach
  • How to improve competitiveness
  • Rapid market growth requires intensive strategy
slide28

Grand Strategy Matrix

Quadrant III

  • Compete in slow-growth industries
  • Weak competitive position
  • Drastic changes quickly
  • Cost & asset reduction (retrenchment)
slide29

Grand Strategy Matrix

Quadrant IV

  • Strong competitive position
  • Slow-growth industry
  • Diversification to more promising growth areas
slide30

Strategy-Formulation Analytical Framework

Quantitative StrategicPlanning Matrix(QSPM)

Stage 3:The Decision Stage

  • Technique designed to determine the relative attractiveness of feasible alternative actions
steps to develop a qspm
Steps to Develop a QSPM
  • Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column
  • Assign weights to each key external and internal factor
  • Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing
  • Determine the Attractiveness Scores (A.S)
  • Compare the Total Attractiveness Scores
  • Compute the Sum Total Attractiveness Score
qspm information from ife and efe

Key External Factors Economy

Political/Legal/Governmental

Social/Cultural/Demographic/Environmental

Technological

Competitive

Weight

Strategy 1

Strategy 2

Strategy 3

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/Operations

Research and Development

Computer Information Systems

Sum total A.S.

Strategic Alternatives

QSPM : information from IFE and EFE

AS 1 to 4 and blank if factor does not effect strategy: TAS = Weight x AS

slide33

QSPM

Limitations

  • Requires intuitive judgments & educated assumptions
  • Only as good as the prerequisite inputs

Advantages

  • Sets of strategies considered simultaneously or sequentially
  • Integration of pertinent external & internal factors in the decision making process

Example of a QSPM for Dell

questions
Questions
  • Discuss 3 techniques that can be used by organisations to choose alternative paths to achieve their long term objectives.
  • Discuss how to choose the best of a set of alternative strategies.